U.S., China Kick Off a New Round of Trade Negotiations The U.S. and China started the latest round of trade talks with a phone call involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

The three senior officials discussed Chinese purchases of agricultural products and changes to fundamental Chinese economic policies during the phone call, said people familiar with the conversation. They didn’t provide further details. (…)

China’s Commerce Ministry, in a brief statement, said the conversation—held Monday evening in the U.S., Tuesday morning in China—was meant to “push forward with next steps in a timetable and road map” for negotiations. Mr. Liu plans to travel to Washington after the new year, people familiar with the matter said. (…)

By holding the phone call, both sides are suggesting a willingness to keep the negotiations from getting derailed by Chinese anger at the arrest in Canada at the U.S. request of a senior executive at China’s Huawei Technologies Co.

(…) state media and social-media censors have been careful not to stir up anti-U.S. sentiment, in an apparent effort to separate the Huawei issue from the trade negotiations. President Xi has instructed his lieutenants to follow through on the agreement he reached with Mr. Trump, according to Chinese officials. (…)

Wu Handong, an adviser to China’s Supreme People’s Court, told The Wall Street Journal on Tuesday that China is speeding up approving a revised patent law in part to address U.S. concerns. Mr. Wu said the draft was submitted to China’s legislature earlier this month and is expected to be approved next year. Revisions, he said, would subject violators to greater administrative penalties and fines.

A proposal to reduce tariffs on cars made in the U.S. to 15 percent from the current 40 percent has been submitted to China’s Cabinet to be reviewed in the coming days, according to people familiar with the matter.

China Auto Sales Go Downhill for Fifth Month Running But yearly electric-vehicle sales passed the 1 million mark for the first time in November

Chinese vehicle sales fell 14% last month compared with November 2017 to 2.55 million, the government-backed China Association of Automobile Manufacturers said Tuesday. Sales in the first 11 months of 2018 were down 1.7% year-over-year. (…)

the government has shown no interest in helping the sector by cutting its auto-sales tax, a measure it has previously employed to help auto makers through lean spells.

It is unhealthy for the Chinese auto market to depend on official assistance every time sales dip, said Shi Jianhua, the association’s deputy secretary-general. In a truly competitive market, good companies will prosper and bad companies “will be forced to adjust and upgrade,” Mr. Shi said.

The government’s tax on light-vehicle sales only returned to its usual level of 10% at the start of 2018, after earlier being cut as a stimulus measure, likely making officials reluctant to intervene again so soon, said Ernan Cui, China consumer analyst at Gavekal Dragonomics. But more important, government policy has shifted decisively toward promoting EV sales and away from gasoline cars, Ms. Cui said, making any official moves to stimulate the market as a whole increasingly unlikely. (…)

U.S. JOLTS: Job Openings and Hires Rates Improve

(…) The level of job openings increased 1.7% in October (16.8% y/y) to 7.079 million following a 4.6% decline from the August record. Private-sector openings rose m/m and were up 17.7% y/y. Construction sector job availability surged by one-quarter y/y. Openings in leisure & hospitality strengthened by one-quarter y/y and they rose 15.1% y/y in education & health services. Trade, transportation & utilities job openings increased by one-quarter y/y as did factory sector openings. Job openings in professional business services gained an improved 13.2% y/y. Government sector job openings rose a lessened 8.5% y/y. (…)

Total hiring increased 3.4% (5.2% y/y) to a near-record 5.892 million, reversing the September decline. Hiring in the private sector increased 5.1% y/y with trade, transportation & utilities hiring strengthening 20.2% y/y. Factory-sector hiring rose a lessened 12.0% y/y. Educational & health services hiring increased 6.2% y/y and leisure & hospitality improved 2.7% y/y. Professional & business employment rose 3.8% y/y, down from the double-digit gains earlier in the year. Construction sector hiring fell 6.2% y/y.

OECD LEIs Point to Weakness

OECD LEIs point to weakness ahead for the OECD area as well as separately for the OECD seven largest economies, the euro area, and the United States. All LEI metrics declined in October as well as over three months, six months and 12 months. Japan is the ‘exception’ in the table, with sequential declines but with flat performance in its LEI in the two most recent months. (…)

While the Fed in the U.S. would like to consider the U.S. an island and buffered from these effects overseas, the evidence does not support that. Fluctuating exchange rates do permit relatively more independent movement of national policies and more policy ‘insulation’ but it is clear that many of the same forces that are driving all these economies are forces that have been weakening. The OECD indicators signal slower than normal growth, but they do not give any clears reading on whether a recession is in prospect or not. (…)

What we see for these metrics are absolutely low LEI readings and erosion in LEI values that both point to slowing conditions ahead. We find signals with relative deep roots. We find this at a time that central banks are dismantling stimulus programs or planning to do so. In the EMU, Germany is running fiscal surplus and Italy is being hounded to run a less stimulative policy by the EU itself. In the U.S., the Fed balance sheet has been in the process of shrinking as rate hikes also have been in train since end-2015. And despite ongoing financial distress and a sharply flattening yield curve, there is no consensus that the Fed will shelve its rate hike planned for December. But the Fed is expected to more broadly back off its rate hike path. (…)

There is no way to sugar coat this news. It is not good and it likely stems from concerns over trade frictions explaining the global nature of the unraveling. Between global trade frictions and rising interest rates in the U.S. fading fiscal stimulus also in the U.S., there is a lot in the mix to explain financial markets concerns about growth. The U.S. interest sensitive sectors already have been hit despite slow interest rate increases made more modest by a voracious flattening of the yield curve. These are draining growth. Beware that the United States’ somewhat better recent U.S. economic performance is probably boosting the BRICS performance through their trade with the U.S. As U.S. growth suffers, the resilience of the BRICS that depend on the U.S. will be eroded as well.

• Thai export boom fades on China slowdown

Global Recession Alarms Aren’t Ringing, Despite Market Mayhem Investors are growing anxious about the prospect of recession in developed countries, but many economic trends don’t fit with patterns that presaged previous downturns.

(…) “We find that on several dimensions, the behaviour of the data over the last four quarters in the U.S., Eurozone and Japan is completely incongruous with any of the recessions that took place since 1980,” write Pierre Lafourcade and Arend Kapteyn of UBS.

Mr. Kapteyn, in an interview, said the model is consistent with a “sharp slowdown” in global growth, but not the end of the business cycle. (…)

Economists at J.P. Morgan have drawn similar conclusions about the growth outlook. They built several alarm systems for impending recessions—one using only high frequency economic data and another including economic data and financial market behavior. The U.S. indicator using only economic data puts a 21% probability on a downturn in the next 12 months, up a bit in recent months but still below levels reached in 2016. The indicator that uses financial market behavior, such as stock price changes and changes in long-term Treasury bond yields, puts the probability at a much higher 36%. (…)

But Charles Schwab’s Jeffrey Kleintop finds that an inversion of the 10y-3m U.S. yield curve has preceded each global recessions by about one year since 1970 and should be used as a signal for non-U.S. stock markets:

(…) Why is the U.S. yield curve so much better at gauging global economic conditions? For one thing, the U.S. is the world’s largest economy and a major source of demand for global companies. In addition, the U.S. government bond market is the largest and most liquid in the world, which may mean it better reflects global conditions and is less susceptible to domestic influences than other countries’ bond markets. (…)

Macron Hands EU a New Headache in Fight Over Italian Budget

The promises Macron unveiled Monday night in a bid to defuse the Yellow Vest protests, from a 100-euro ($114) a month hike in the minimum wage to abolishing a tax on pensions, could play into the hands of Italian Deputy Premiers Matteo Salvini and Luigi Di Maio as they challenge EU budget rules to start delivering on election promises.

As the EU pressures Italy to retreat from a deficit of 2.4 percent of GDP next year, Macron’s plan could push France’s to 3.5 percent, according to initial estimates. (…)

SMALL BUSINESS OPTIMISM REMAINS HISTORICALLY HIGH IN NOVEMBER

Small business optimism slightly dipped in November. The Index declined 2.6 points to 104.8 with more than half the decline attributable to Expected Business Conditions and Expected Real Sales.

• Businesses Less Optimistic About Coming Year Than They Were 12 Months Ago, ISM Survey Shows Fewer purchasing and supply executives believe the next year will be better than the last, but many still expect sales, hiring and investment to rise in 2019

(…) The ISM said labor and benefits costs are expected to rise 2.5% in the manufacturing sector and 3.2% in the nonmanufacturing sector in 2019, compared with year-ago forecasts of 2.1% and 2.6%, respectively. A large majority of survey respondents said they’ve had difficulty hiring workers to fill open positions, and a growing majority of companies also report raising wages to recruit new hires.

Purchasing and supply executives in the manufacturing sector said they expected the prices their businesses pay are expected to rise 3.3% in 2019 after a gain of 5.1% this year. In the nonmanufacturing sector, price increases are seen accelerating to 3.6% next year from 2% this year.

Compared with the ISM’s last economic survey, conducted in May, fewer companies now expect tariffs to raise the price of their goods to customers, or to cause delays and disruptions in their supply chains.

But 65% of executives at manufacturers said their companies are evaluating new sources of supply and other changes as a result of tariffs the Trump administration has either imposed or threatened on a wide range of imports.